Why It Could Be More Expensive to Do Your Taxes

The IRS wants to regulate tax preparers.

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Many people expect 2010 to be the last year with current marginal income tax rates, because the Bush tax cuts are set to expire. I'll have more on what that means for filing your 2010 tax return soon, because I have an article in an upcoming U.S. News issue on that very topic. But that's not the only way doing your taxes in 2010 might be less of a drain on the wallet compared to doing them in 2011. The cost of paying someone to do your taxes could be going up next year.

The IRS has announced starting in 2011 it will be regulating the tax return preparers who work on over 80 percent of all federal income tax returns.

Starting with the 2011 tax season, the IRS plans to require paid preparers to register with the agency. Subsequently -- the timeline is not yet firm -- they will be required to pass competency tests and receive continuing professional education.

As we all know, making something more scarce also means making it more expensive. Requiring registration and testing will reduce the supply of tax return preparers, thus allowing those who remain to charge more for their services.

That might be a cost worth taking. Daniel Indiviglio of the Atlantic argues that we need to crackdown on "shady" tax preparers. But he also points out that there's another way to address the problem of unregulated tax preparers that would yield much greater additional benefits.

...a much better solution would be to construct a new tax system where we don't need tax preparers. Maybe I'm crazy, but I think more simplicity is a far better alternative to more regulation.

federal taxes

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